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Jones Act beneficiaries schizophrenic about China

Carriers such as Matson and Pasha say the Jones Act is a “line of defense” against China, yet are happy to do business with China when it suits them

By Mark Coleman and Melissa Newsham

Jones Act supporters have long been on shaky ground in claiming that the protectionist federal maritime law is critical to national security and the strength of the U.S. maritime industry.

This perhaps explains why they have recently been focusing on China as a main reason the 1920 law should be retained.

For example, America’s foremost Jones Act defender, the American Maritime Partnership, has made it one of its principal arguments that the Jones Act comprises a “line of defense against reliance on the Communist Party of China to build American ships, and the CCP’s desire to control American commerce.”[1]

However, far from sticking it to China, the Jones Act instead has inflicted significant damage mostly on the U.S., both economically and in terms of national security.

Meanwhile, some key supporters of the Jones Act actually derive much of their profits and cost savings from China, calling into question why they are being so intransigent toward that nation.

Jones Act background

Enacted as Section 27 of the Merchant Marine Act of 1920, the Jones Act mandates that all cargo transported between U.S. ports be carried by ships that are U.S. flagged, built and mostly owned and crewed by Americans.

U.S. Sen. Wesley Jones, after whom the federal maritime law was named, argued in 1922 that such restrictions were “necessary for our commercial growth, our national defense and national independence.”[2]

But more than a century later, things for the U.S. maritime industry don’t seem to be going how Sen. Jones intended.

Between 1953 and 2013, the U.S. lost approximately 300 shipyards,[3] leaving just four shipyards capable of building large ocean-going vessels.[4]

In 2023, those shipyards had a mere four ocean-going vessels in their orderbooks, compared with 2,400 for shipyards in China, 731 in South Korea and 645 in Japan. European shipyards combined had 333, while “the rest of the world” had 245, including the four in the U.S.[5]

In the global context, the world’s merchant fleet in January 2023 consisted of 56,500 vessels of at least 1000 gross tons,[6] of which fewer than 100 were Jones Act ships — down from over 200 40 years ago.[7]

The fact that the prices of U.S.-built vessels now range from four to five times higher than in the international market helps explain their low sales volume.[8]

Their high replacement cost is also why most ships in the Jones Act fleet are far older than the international average,[9] which unfortunately means they cost more to operate, are less environmentally friendly, are less safe and have less military value.[10]

America’s merchant marine force similarly has declined from about 25,000 in 1970 to 11,000, since fewer ships means fewer sailors.[11]

U.S. Rep. Mike Gallagher, chairman of the House Select Committee on the Chinese Communist Party, recently stated that “the small and aging U.S. sealift fleet, crewed by a shrinking workforce of mariners, may not be ready to respond to a crisis.”[12]

Then there’s China

Proponents of the Jones Act insist the law is not a part of the problem.

As previously mentioned, the American Maritime Partnership, America’s foremost Jones Act lobbyist, has singled out China as a main reason U.S. lawmakers should support the Jones Act.

Similarly, the president of the Shipbuilders Council of America, another vociferous Jones Act proponent, recently pegged China as a major threat to the U.S. shipping industry, claiming it has been acting to “saturate the shipbuilding market and drive out global competitors.”[13]

Touting the Jones Act as America’s “fundamental national security law,” Matt Paxton wrote that “without a strong, forward-thinking comprehensive American maritime strategy, advancing predictable budgeting and other market-building policies and strengthening the Jones Act, other nations like China will continue to invest in their commercial and military maritime capacity and will continue to overtake us as the world’s maritime leader.”[14]

In addition, a coalition of trade unions recently filed a formal complaint with the U.S. Office of the Trade Representative stating that the “American commercial shipbuilding industry is a shell of its former self” — and that China is to blame.[15]

The group accused the Chinese government of giving China’s shipbuilders unfair advantages and called for a fee on every Chinese-built vessel that docks at a U.S. port.

It also urged the Biden administration to “strengthen the implementation of the Jones Act to ensure that it is being faithfully enforced to stimulate demand for U.S.-built vessels to the maximum extent possible” — which presumably would involve extending the requirement to vessels that are not directly involved in transporting merchandise between U.S. ports.[16]

In response, U.S. Trade Representative Ambassador Katherine Tai agreed to investigate the complaint, with strong support from the White House, which stated in a news release that “ it is critical to understand China’s uniquely aggressive set of interventions in these sectors, and to take actions that address distortions to the global market for commercial vessels, maritime shipping, and logistics that harm American workers and shipbuilders.”[17]

Oh, the irony — or is it hypocrisy?

The irony of singling out China to support the Jones Act is that U.S. Jones Act carriers are among the biggest beneficiaries of China’s shipyards and international trade.[18]

For example, Matson, the largest of the two Jones Act carriers that dominate the Hawaii market, relies heavily on the China trade.[19] According to the company’s latest financial report, its China service accounts for the second largest portion of its cargo volume.[20]

Matson and its primary competitor, Pasha Hawaii, also rely heavily on Chinese shipyards to service and maintain their Jones Act vessels.

In fact, they save so much money having their Jones Act ships repaired in Chinese shipyards that they are willing to pay the 50% tariff the U.S. government levies on repairs conducted in overseas shipyards.[21]

Case in point: Rather than order an overly expensive new ship from a U.S. shipyard, Pasha recently opted to sail its 43-year-old Horizon Reliance to a Chinese shipyard to be significantly modified  — but not so much that it would lose its qualification as a Jones Act ship.[22]

A new YouTube video released by Pasha proudly boasts that the ship, now called the George II, is the “the first vessel to be repowered from steam to LNG [liquid natural gas]” — though it strangely omits mentioning that the conversion work was performed in China.[23]

Meanwhile, in 2019, Matson officials actually traveled to China to celebrate their 20 years of working with the COSCO shipyard in Nantong to have its Jones Act vessels maintained and repaired.[24]

The shipyard’s work on the container carrier Maunawili marked the 50th ship it had repaired for Matson.

Two years later, Matson and COSCO celebrated the Chinese shipyard’s 60th repair of a Matson ship.[25]

In a news release, COSCO stated the 2021 event marked “the new record of the most repaired ships and longest cooperation time between one shipping company and COSCO SHIPPING Shipyard (Nantong).”

It further stated that “during 22 years of cooperation, Matson has become one of the core ship repairing and conversion business customers of COSCO SHIPPING Shipyard.”

Clearly, it seems ironic, if not hypocritical, for Matson and Pasha to be affiliated with a national lobby group that claims the Jones Act is a defense against China’s maritime dominance. Both are represented on the American Maritime Partnership’s board of directors, and a Matson executive served as its president until earlier this year.

Apparently, however, their concerns about China do not extend to the maintenance and repairs of their fleets or otherwise doing business with that country.

And they are not alone. Other Jones Act carrier companies that have sent their ships to Chinese shipyards for repairs and upgrades include National Shipping of America and Seabulk Tankers Inc.[26]

As Grassroot Scholar and Cato Institute trade policy analyst Colin Grabow recently put it: “Jones Act shipping firms repair their vessels in low-cost Chinese shipyards and then use the savings to advocate for a law that prevents using shipyards in allied countries to expand and modernize the U.S. domestic fleet. All in the name of stopping China.”[27]

Matson executives did not respond to multiple requests for comment about this apparent contradiction. A Pasha spokesperson offered a statement that amounted to misdirection.

“Continued investment is needed in U.S. shipyards to create the capacity and capabilities needed for highly complex repower projects,” wrote a Pasha Hawaii spokesperson to the Grassroot Institute of Hawaii.[28] “Today we can look to U.S. yards for innovative new builds, like the two new LNG-powered container ships recently constructed in Brownsville, Texas. However, there was no availability at U.S. shipyards to meet the timeline for this repower project.”

Of course, if the Jones Act were truly critical to U.S. maritime strength, one would expect it by now to have produced greater “capacity and capabilities” in domestic shipyards.

The fact that “there was no availability at U.S. shipyards to meet the timeline” for Pasha’s repower project further illustrates the need for U.S. carriers to be able to simply buy new, less costly vessels from foreign manufacturers — or at least from allied shipyards.

The biggest losers: U.S. consumers

So, why are companies such as Matson and Pasha Hawaii among the most vocal supporters of the Jones Act?

The obvious answer is because it is in their financial interest.

After all, U.S. shipyards — the ones that are left — benefit because they have a captive market. And Jones Act carriers benefit because even though they have to pay more for the ships they buy, they can pass these wasteful expenses along to their customers who have no other choice.

This situation is especially pronounced in Hawaii, where a 2020 report commissioned by the Grassroot Institute found that the Jones Act costs the state economy $1.2 billion annually — nearly $1,800 per family — and results in the loss of 9,100 jobs and $404 million in wages.[29]

The Grassroot report also estimated that eliminating the act’s U.S.-build requirement alone would save Hawaii residents about $531.7 million, or about $300 per resident, and add 3,860 jobs.

Meanwhile, the higher cost of Jones Act ships further acts as a barrier to entry for any potential domestic competitors,[30] which sometimes means U.S. residents cannot obtain certain goods via Jones Act vessels at all.

For example, residents of some of America’s northeastern states, Hawaii and Puerto Rico are unable to buy cheap LNG from U.S. sources because no Jones Act-qualified vessels are designed to carry the fuel. Instead, they must buy from foreign sources.[31]

Similarly, Hawaii is heavily dependent on foreign oil — at one time much of it from Russia — because it is cheaper than buying it from less expensive U.S. sources and having to pay the Jones Act premium.[32]

These circumstances do not necessarily serve the causes of national security or national independence, as U.S. Senator Jones suggested. But that’s the situation America finds itself in.

At the same time, this is not to argue against free international trade. The lack of it is precisely the problem. In fact, it should be wholly acceptable for U.S. shipping companies to outsource their vessel repairs and maintenance to foreign shipyards, including in China; and for U.S. companies to buy oil and other products from overseas suppliers. And, of course, they should also be allowed to buy brand new vessels from foreign shipyards.

Economists and political scientists have noted that free trade brings people together and promotes economic prosperity and peace.[33] The Jones Act, on the other hand, has isolated the U.S. from world commerce by preventing foreign carriers from shipping goods between U.S. ports and requiring U.S. carriers to buy vessels made in U.S. shipyards. In the process, it has decimated America’s maritime industry.

If U.S. policymakers wish to stimulate shipbuilding in the U.S., encourage more waterborne transport between U.S. ports and grow the nation’s maritime workforce — they need to liberalize the Jones Act, not “strengthen” it with more regulations that will only exacerbate the problems the industry and nation already have.

Until meaningful reforms are made to the Jones Act, the true casualties of this anachronistic protectionist law are not countries such as China, but American consumers, American national security and even the U.S. maritime industry itself.
___________

Mark Coleman is communications director and Melissa Newsham is a Grassroot Institute research associate at the Grassroot Institute of Hawaii.

[1]The Jones Act: A Line of Defense Against China’s Maritime Dominance,” American Maritime Partnership, May 15, 2023.
[2] Wesley L. Jones, “The Merchant Marine Act of 1920,” Proceedings of the Academy of Political Science in the City of New York,” 1922, p. 241.
[3]Hearing Before the Subcommittee on Coast Guard and Maritime Transportation of the House of Representatives Transportation and Infrastructure Committee,” May 21, 2013, p. 5.
[4]Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security,” Cato Institute, Nov. 12, 2019, p. 4.
[5]Annual Review 2024,” BRS Group, pp. 28, 47.
[6]Merchant Fleet,” United Nations Conference on Trade and Development, 2023.
[7] ​​ “United States Flag Privately‐Owned Merchant Fleet Report,” U.S. Department of Transportation Maritime Administration, Jan. 31, 2024, p. 2, and “Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security,” p .4.
[8]Shipping Under the Jones Act: Legislative and Regulatory Background,” Congressional Research Service, Nov. 21, 2019, p. 4; and “U.S. Commercial Shipbuilding in a Global Context,” Congressional Research Service, Nov. 15, 2023, p. 2.
[9] Jonathan Helton, “Jones Act needs an update, and so does the Jones Act fleet,” Grassroot Institute of Hawaii, Dec. 21, 2021. Existing Jones Act carriers don’t complain about the high cost of U.S.-built vessels because it increases the cost of entry into the market by potential competitors. See “An Economic Analysis of the Jones Act,” Mercatus Research, May, 2017, p. 38.
[10] Timothy Fitzgerald, “Environmental Costs of the Jones Act,” Cato Institute, March 2, 2020; and Thomas Grennes, “Does the Jones Act Endanger American Seamen?,” Cato Institute, 2017.
[11]Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security,” p. 3; and “Maritime Workforce Working Group Report,” U.S. Department of Transportation, 2017, p. 24.
[12] Mike Gallagher, “Letter to TRANSCOM and MARAD,” Feb. 6, 2024, p. 2.
[13] Matt Paxton, “US Commercial Shipbuilding and Repair Industry Ensures American Strength at Sea,” Marine Link, April 3, 2024.
[14] Paxton states here that the U.S. is “the world’s maritime leader,” despite noting in the same article that “as a maritime force, the U.S. is falling behind. China, Korea and Japan continue to dominate the world’s total tonnage 95% of the world’s tonnage in fact.”
[15]Petition for Relief Under Section 301 of the Trade Act of 1974, as Amended,” March 12, 2024, p. 1.
[16] Ibid. The group’s petition supports legislation that would “close the loopholes” that exempt certain types of vessels from the Jones Act’s U.S.-build requirement, such as “oceanographic research vessels; vessel equipment, lifting operations, and installation vessels; and various vessels engaged in offshore, undersea cable installation, and decommissioning operations.” p. 119.
[17] Nick Blenkey, “U.S. Trade Representative to investigate unfair Chinese shipbuilding practices,” Marine Log, April 18, 2024, and FACT SHEET: Biden-⁠Harris Administration Announces New Actions to Protect U.S. Steel and Shipbuilding Industry from China’s Unfair Practices,” The White House, April, 17, 2024.
[18] Regarding the growing dependence on Chinese shipyards, see Elisabeth Braw, “Shipping Lines Getting Worried About Dependence on China,” Foreign Policy, April 3, 2023.
[19] Ahmed Abdulazez Abdulkadir, “Earnings call: Matson reports robust Q4 performance, bullish on China service,” Investing.com, Feb. 21, 2024.
[20] “Matson 2023 Annual Report,” p. 34. See “China containers.” In 2022, “China containers” comprised the largest portion of its cargo volume. See “Matson 2022 Annual Report,” p. 32.
[21] Jonathan Helton, “China a threat to Jones Act lobby, except when it’s not,” Grassroot Institute of Hawaii, May 4, 2021.
[22] Nick Blenkey, “Pasha to repower veteran box ship to LNG dual fuel,” Marine Log, Oct. 26, 2021.
[23] “Introducing MV George II, the first steam-to-LNG diesel conversion in the world,” The Pasha Group, YouTube, May 20, 2024. Putting the conversion of the George II in its broader context, Grassroot Scholar and Cato Institute trade policy analyst Colin Grabow remarked on May 20, 2024, that “the reason the conversion is first in the world is because any other First World country would have replaced that ship decades ago. This is like upgrading a K-car to a hybrid electric engine.”
[24] Hu Xiaoyu, “COSCO celebrates 20-year partnership with Matson,” China Daily, July 12, 2019.
[25] “The 60th Ship Repairing Completion Ceremony for Matson,” COSCO Shipping Heavy Industry Co., Oct. 8, 2021.
[26] Colin Grabow (@cpgrabow), “2. National Glory,” Twitter, Dec. 30, 2021; and Joe Brady, “‘Shocked’ by U.S. Costs,” TradeWinds, Sept. 28, 2006.
[27] Colin Grabow, “US Protectionism and Chinese Shipyards Keep Aging Ships Sailing,” Cato Institute, Jan. 17, 2024.
[28] Email correspondence with Pasha corporate communications manager Emily Sinclair, Feb. 7, 2024.
[29]Quantifying the cost of the Jones Act to Hawaii,” Grassroot Institute of Hawaii, July 2020.
[30] Thomas Grennes, “An Economic Analysis of the Jones Act,” Mercatus Research, May, 2017, p. 38. See also  “Matson 2023 Annual Report + Form 10-K,” p. 14. In the report’s required section on factors that could make an investment in Matson “speculative or risky,” the company states that “if the Jones Act were to be repealed, substantially amended or waived and, as a consequence, competitors were to enter the Hawaii or Alaska markets with lower operating costs by utilizing their ability to acquire and operate foreign-flagged and foreign-built vessels and/or being exempt from other U.S. regulations, the Company’s business would be adversely affected.”
[31] Colin Grabow and Alfredo Carrillo Obregon, “The Jones Act’s Role in Encouraging Puerto Rico’s Use of Russian Energy,” Cato Institute, May 1, 2023; Jonathan Helton, “New England joins Hawaii, Puerto Rico as Jones Act victim,” Grassroot Institute of Hawaii, Sept. 28, 2022; and “Dislocations in the US Propane Market and the Jones Act,” Enverus.com, 2024.
[32] Jonathan Helton, “Hawaii needs Jones Act waiver for oil imports,” Grassroot Institute of Hawaii, Feb. 22, 2022.
[33] Patrick J. McDonald, “Peace Through Trade or Free Trade?” Journal of Conflict Resolution, August 2024. From the abstract: “Free trade, and not just trade, promotes peace by removing an important foundation of domestic privilege—protective barriers to international commerce—that enhances the domestic power of societal groups likely to support war, reduces the capacity of free-trading interests to limit aggression in foreign policy, and simultaneously generates political support for the state often used to build its war machine.” See also Alan Wm. Wolff’s  “Trade for Peace,” and “Trade for Peace: Can Trade Be an Effective Tool to Support Peace?” both Graduate Institute, Geneva, Sept. 28, 2022 and Sept. 27/28, 2023, respectively; and “Did Bastiat say ‘when goods don’t cross borders, soldiers will’?” Online Library of Liberty, Liberty Fund, accessed May 20, 2024.

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